Franchise territory: how to protect yourself from a nearby outlet

The promise that ‘you will be our only partner in the area’ can influence both your choice of franchise and your willingness to pay a higher initial franchise fee. Yet without precise contractual terms, another outlet under the same brand could legally open nearby. Territorial protection helps align the interests of those involved in a franchise network. As a prospective franchisee, you need to understand in advance exactly whose activities it restricts, where and for how long.

1. Distinguish the trading address from territorial protection

Including your premises’ address in the agreement does not mean the franchisor has undertaken not to open other outlets nearby. Nor does wording such as ‘area of operation: the city of Kazan’ guarantee exclusivity in itself. It may simply define where you are permitted to exercise the rights granted to you.

In Russia, commercial concession arrangements—the legal framework used for franchising—are governed by Chapter 54 of the Russian Civil Code. Under Article 1033, an agreement may require the rights holder not to grant other parties similar packages of exclusive rights for use within the allocated territory, or to refrain from carrying on similar activities there itself. These restrictions must be expressly agreed: they do not arise automatically when you buy a franchise.

Ask a solicitor familiar with Russian franchise law to check for two separate obligations:

• a prohibition on granting similar rights to other partners within your territory;
• a prohibition on the rights holder itself carrying on similar activities there.

If only the first is included, the franchisor may still be entitled to open its own outlet. If the promise extends to companies within its group, clarify how compliance will be ensured: an agreement with one legal entity does not, in itself, impose obligations on the others.

Under Article 1028 of the Russian Civil Code, the grant of the right to use a package of exclusive rights under a commercial concession agreement must be registered with Rospatent, Russia’s intellectual property authority. This is a separate check: registration of the grant of rights is no substitute for a clear territorial clause.

2. Request a map of the network before paying

Before making any payment, request a list of existing outlets, approved openings and territorial rights already granted. Signed agreements for outlets that do not yet appear on the public map are particularly important. You need to assess not just the network as it stands today, but also the commitments the franchisor has already made.

Russia has no specific mandatory pre-contractual franchise disclosure document with a prescribed, comprehensive list of this information. Article 1031 of the Russian Civil Code requires the franchisee to be given the necessary technical and commercial documentation and other information, but this does not provide a ready-made procedure for checking future neighbouring outlets before buying.

Make your request in writing. Ask for:

• the addresses of operating and planned outlets;
• outlet formats: full-size premises, kiosks, collection points and delivery sites;
• territories previously promised to other partners;
• exceptions for company-owned outlets and particular sales channels.

Cross-check the response against maps, commercial property letting adverts and conversations with existing franchisees. A refusal to disclose partners’ personal data need not prevent the franchisor from providing an anonymised map of outlets and boundaries. Key assurances that there are no overlapping rights can be documented as representations under Article 431.2 of the Russian Civil Code. Agree their wording and the consequences of any inaccuracy with your legal adviser.

3. Make boundaries and exceptions verifiable

Terms such as ‘city centre’, ‘surrounding blocks’ or ‘the shopping centre area’ leave too much room for dispute. Attach a map and a written description of the boundaries to the agreement so that the protected area can be identified unambiguously.

If you use a radius, specify the reference point and measurement method: straight-line distance or distance along a route. For a shopping centre, establish whether protection covers only a particular building or also extensions, neighbouring buildings and the wider complex. State which takes precedence if the map and the address list differ.

Address delivery and distance selling separately. A ban on opening a physical outlet nearby does not necessarily prevent a neighbouring franchisee from delivering orders to your potential customers. Discuss the location of delivery sites, allocation of orders and network advertising within the protected territory.

However, you cannot simply prohibit serving customers ‘from another area’. Paragraph 2 of Article 1033 of the Russian Civil Code makes void any terms allowing a franchisee to sell goods, carry out work or provide services exclusively to customers located or resident within a specified territory. Territorial restrictions must also be assessed under competition law. Distinguish restrictions on outlet locations from restrictions on whom an outlet may serve.

4. Calculate the cost and check the conditions for keeping protection

Territorial protection may come with a higher initial franchise fee, minimum payments or an obligation to open several outlets. Compare the projected financial results with and without protection. Check whether the extra cost is justified if revenue grows more slowly than expected: the absence of a neighbouring franchisee does not guarantee demand.

Establish when protection takes effect and when it ends. If it depends on opening by a particular date, agree what happens if the franchisor itself delays approval of the premises. If missing a sales target can trigger the loss of protection, specify how performance is calculated, the assessment period, the notice required and the time allowed to put matters right.

Do not accept a vaguely worded right for the franchisor to change boundaries ‘in the interests of network development’. Any change to the protected area should follow a clear procedure, with the consequences for your payments and obligations agreed in advance.

5. Agree what happens if the terms are breached

Before signing, establish how you will be informed of a proposed neighbouring outlet and where to send objections. Set out response deadlines, a procedure for documenting a breach and contractual remedies, such as a contractual penalty, reduced payments or a right to terminate the agreement in specified circumstances.

Do not assume that your initial franchise fee will automatically be refunded. The grounds for, and process of, settling payments when the agreement ends need to be discussed separately. Nor should you stop paying royalties unilaterally: a breach by the franchisor does not always release you from your corresponding obligations.

Practical takeaway: before paying, obtain a territory map, details of rights already granted and a contractual prohibition on specific competing activities. Buy a verifiable commitment with clear consequences for breach—not a verbal promise that you will be the ‘only partner’.